Stephen J. Errico founded Locust Wood Capital in 2002 after working as adviser at Lehman Brothers, Paine Webber and Morgan Stanley. The fund succeeded to increase its capital from $29 million in 2002 to $980 million in 2015. The fund’s primary strategy is determining mispriced companies which are going through significant change of corporate structure. As of the end of March, Locust Wood’s favorite small cap picks are NorthStar Asset Management Group Inc (NYSE:NSAM), Star Gas Partners, L.P. (NYSE:SGU), QEP Midstream Partners LP (NYSE:QEPM) and KapStone Paper and Packaging Corp. (NYSE:KS).
There are more than 700 hedge funds in our research database and we are focused on the small-cap picks of these funds. Small cap stocks are not as much popular as large cap stocks so they are less efficiently priced. Hedge funds have huge research budgets and they achieve better results on small cap stocks. In addition, since we started our small cap the strategy in August 2012, our quarterly top 15 stock picks in this strategy generated a cumulative return of over 137%, outperforming the S&P 500 ETF (SPY) by over 80 percentage points during the same period (read more details here).
Stephen J. Errico’s stake in NorthStar Asset Management Group Inc (NYSE:NSAM) is the largest position, represented by a small cap company in his equity portfolio, with a value of $31.55 million and contains 1.35 million shares. NorthStar Asset Management Group Inc (NYSE:NSAM) provides real estate management services worldwide. Recently the company has announced its next quarterly dividend payment of $0.10 per share, payable on May 22, which gives it a yield of 1.88%. The company is planning to buy back around $400 million worth of stock over the next twelve months, which constitutes 10% of the company’s float with current share prices. Among the funds we track, Robert Pitts’ Steadfast Capital Management, Marc Lisker’s MSDC Management, Ken Griffin’s Citadel Investment Group and David Einhorn’s Greenlight Capital are just a few who held long positions in the company at the end of 2014.
Locust Wood’s second favorite small cap pick is Star Gas Partners, L.P. (NYSE:SGU). The investor reported holding 537,350 shares of the company, worth $3.98 million. Star Gas Partners, L.P. (NYSE:SGU) specializes in home heating products and services to residential and commercial customers. The company recently declared a quarterly dividend of $0.095, up by 8.6% from the previous value of $0.088. For the first fiscal quarter of 2015, the company’s net income declined to $15.55 million from $19.29 million a year earlier, affected by warmer temperatures and the decline in value of derivative instruments, among other things. Gregory Bylinsky’s Bandera Partners is a major shareholder of Star Gas Partners, L.P. (NYSE:SGU) with 4.86 million shares, according to its latest 13F filing.
In QEP Midstream Partners LP (NYSE:QEPM), Locust Wood Capital disclosed holding 36,994 shares valued at $0.58 million. The investor cut its stake by 70% during the first three months of 2015. QEP Midstream Partners LP (NYSE:QEPM) manages midstream energy assets and it was spun-off from QEP Resources Inc (NYSE:QEP). Its stock appreciated by 4.30% since the beginning of the year, outperforming Oil & Gas Midstream industry, which inched down by 0.80% during the same period. Cliff Asness’ AQR Capital Management is another shareholder of QEP Midstream Partners LP (NYSE:QEPM) with 18,555 shares as of the end of 2014.
KapStone Paper and Packaging Corp. (NYSE:KS) is another one of Locust Wood Capital’s small cap picks, the position containing 81,392 shares valued at $2.67 million. KapStone Paper and Packaging Corp. (NYSE:KS) is a $2.60 billion container board/corrugated products and specialty paper producer. The company achieved strong growth in the last five years by increasing its sales from $783 million in 2010 to $2.30 billion last year. Earlier this month, Zacks upgraded its rating on KapStone Paper and Packaging Corp. (NYSE:KS)’s stock to ‘Hold’ from ‘Sell’, but RBC Capital reduced its price target to $36.00 from $38.00 with ‘Outperform’ rating. Richard Perry’s Perry Capital also holds 3.82 million shares of the company, according to its latest 13F filing.
Disclosure: None
